A Financial Mechanism dedicated to the Mediterranean

1. A Financial Mechanism dedicated to the Mediterranean Radhi Meddeb President IPEMED

2. Facts& figures • In 2010, EIB estimated the investment needs of the SEMC to nearly $ 250 billion: $ 100 billion for energy, 110 for urban services (water, sanitation, education, public transport, health ...), $ 20 billion for national and international transport (ports, airports, highways ...) enhancing the need for structuring projects. • All major world regions have their development banks and institutions except the Mediterranean which suffers from a lack of coordination between funding institutions, from under-mobilization of private savings, and from a lack of financial engineering support services, particularly for SMEs and infrastructure projects. • Moreover the Mediterranean Region need government directed investment toward the under-developed sectors and regions over the long-term and into other projects that bring depth to the region’s financial and stock markets. • By calling for a sustainable economic environment and a new public order based on democracy in the public sphere, Arab population has made it all the more urgent to support the Southern Med countries in their economic development and political transition.

3. The need for a financial mechanism dedicated to the Mediterrenean • Time has come to establish a financial architecture specific to the regionso as to meet its structural needs, with a the aim of eventually creating an economically integrated region. Arguments in favour of the implementation of the proposed architecture are as follows: (i) Europe needs to find growth relays in its immediate environment; (ii) the SEMCs are in transition to democracy and are unable individually to deal with monetary risks, long-term FDI risks, and export risks. • The World Bank created at the global level a set of instruments for identifying, financing and underwriting projects and providing technical assistance and training, Similarly, the Mediterranean region needs to endow itself with similar facilities specific to the region. • The establishment of a Mediterranean development bank is a strategic goal and it has little to do with moral, ethical or even historical considerations; above all other things, it is an economic necessity, for countries on both north and south shores of the Mediterranean.

4. What will bring the Mediterranean Development Bank to the Region ? • By its very existence, the Mediterranean development bank would contribute to: • improve security of savings and investment flows: • enable the transition from a funds remittance paradigm to a sustainable regional integration paradigm. • facilitate transformation of liquidities into long-term resources and by fostering the prerequisites for monetary stability and solidity. • raise the level of financing SMEs and the private sectors. • improve the quality of projects by providing expertise and capacity for risk identification and assessment, both of which are lacking in the region. • carry out ambitious, cross-cutting projects with the capacity to mobilise stakeholders across the board.

5. Basic principles of the Mediterranean Development Bank • For it to be functional and inspire trust, the Development Bank should rest upon basic principles. These are conditionality; complementarily; subsidiarity to the private sector, and an AAA rating. • Conditionality: reforms are required in the region in order to establish a stable economic governance that will afford due protection to investors and an institutional framework that will foster a market economy. A development bank cannot remedy an absence of reform. However, it could help establish, in the transition process, a more business-friendly environment. • Complementarity: the development bank is not intended to replace institutions already operating in the region. Its ambition is to coordinate the action of existing institutions so as to offer services and functions that are poorly covered or not covered at all by existing stakeholders. • Subsidiarity to the private sector: the bank will not be replace the private sector or engage in activities specific to the private sector. It will support the private sector by seeking maximum leverage and by bringing different modes of financing that are lacking in the region’s local markets. • An AAA rating is a pre-requisite for the establishment of the bank. An AAA rating is crucial to the bank’s financial viability and proof of its financial solidity, its rigorous management of risk, and its exemplary professional management.

6. Main tasks of the Mediterranean Development Bank : • Transform local savings into medium-term investments • Support the private sector, particularly growing SMEs • Support the creation of innovative funds dedicated to early stage financing • Support the development of the local financial markets.

7. Financing and governance of the Mediterranean Development Bank • The Mediterranean Development Bank need to be majority publicly owned, so as to secure its AAA rating. The bank will also be open to other sources of financing: sovereign funds and the private sector. An initial estimate of the capital required to launch the bank’s activities is between 10 and 15 billion euro. • Public sector institutions would include multilateral financial institutions (EIB, EBRD, World Bank, etc.) and national development finance institutions (AFD, KfW, etc.), as well as northern and southern States wishing to participate. Involvement by States would mean de facto acceptance of the bank’s activities targeting enterprises in their territory, with the objective of integration into a regional financial zone in which each State would have helped define common rules. • The Mediterranean Development Bank should propose a new governance approach more coherent with co-development imperatives. This new approach would involve closer involvement of the SEMCs in project design and in decision making mechanisms. Participation should encourage countries to re-establish their relations on a new footing, to revise their modus operandi, and to favour a regional approach.